Planning for the business and family in an interrelated and systematic way can seem artificial and uncaring from a family perspective. Planning structures, decision processes, policies and procedures for family relationships in the way you would design business relationships may seem unnecessary and uncaring at first glance. However, when a family owns valuable assets together that benefit from a synergistic relationship, like a functioning enterprise, it is important to plan both family and business relationships.
The relationships within the family can have a powerful impact, positively or negatively, on the success of the business. Divisions within the family can lead to divided and even competing interests within the business. Likewise, differences that arise from business relationships can destroy family harmony. When families attempt to avoid these problems by disassociating their business and family they only make things worse. The business and the family that owns it are unavoidably linked.
For example, many business owning families pass ownership down through generations based upon family branches. This is a reasonable and logical way for parents to distribute their wealth among their children. However, if this is done without parallel planning on the family side it can have the unintended consequence of dividing the family. If family branches develop into voting blocks that elect “champions” to positions on the board of directors they may not feel a fiduciary responsibility to all shareholders. Similarly, family branches that are larger tend to have individual owners with smaller percentages of the voting or beneficial shares. This can create an atmosphere where members of a large family branch become disinterested because they do not have the same influence and benefit as members of smaller branches.
Good structures, policies and decision making processes for both the family and business can serve to strengthen family ties, support good business governance, and allow estate planning to benefit the family branches as businesses are passed successfully from generation to generation.